I recently received this question via e-mail:
I am very worried about my job right now, since there have been rumors of cuts at work. I have credit card and a mortgage that — unless I lose my job — is mostly manageable. If I have to make this decision, which should I pay first: my credit card bills or my mortgage?
First of all, I hope that you keep your job. This is a time of trepidation for many as mass layoffs become more common. And I am sure that others are starting to tote up their obligations and try to determine their priorities.
I advise this: Pay your mortgage before you pay your credit card bills. Your mortgage loan is secured with your house. If you miss your payments, you could lose your home. Your credit cards are unsecured debt. This means that they are not tied to any assets. If you miss payments, your creditors can ding your credit profile, and they can sue for repayment (in which case you can negotiate a lower amount or a workable payment plan), but they can’t seize your assets.
Other things you might consider paying for before making your credit card payment (if it comes down to it):
- Necessary medications
- Heat and power for your home
Now is a good time to starting preparing for a worst-case scenario if you are concerned about meeting all your financial obligations in the coming months. Figure out what you can cut from your budget, and start building up an emergency fund that can help you get through a period of unemployment.
Also, if you can, start paying down some of your debt. If you are very concerned that your financial situation is hopeless, you might consider consulting with a trusted financial adviser about bankruptcy.